Krugman's Correct (sort of)
25 January 2008
The Editor, New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Paul Krugman is correct: Uncle Sam's stimulus plan is indeed "a lemon" ("Stimulus Gone Bad," January 25). But it's a lemon not because, as Mr. Krugman worries, the money added to the economy won't be spent. It's a lemon because, whether it is spent or not, any "stimulus" money added to the economy must first be extracted from the economy. If these funds are gotten through taxes or lower government spending the result is less spending and investment by taxpayers and less spending by government. If the funds are gotten through borrowing, private investment spending falls. If the funds come from printing new dollars, the result is inflation: nominal spending rises but so, too, do nominal prices - in the end it's a wash, with real spending remaining unchanged.
Government should forget about short-term trickery and focus on long-run fundamentals.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
The Editor, New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Paul Krugman is correct: Uncle Sam's stimulus plan is indeed "a lemon" ("Stimulus Gone Bad," January 25). But it's a lemon not because, as Mr. Krugman worries, the money added to the economy won't be spent. It's a lemon because, whether it is spent or not, any "stimulus" money added to the economy must first be extracted from the economy. If these funds are gotten through taxes or lower government spending the result is less spending and investment by taxpayers and less spending by government. If the funds are gotten through borrowing, private investment spending falls. If the funds come from printing new dollars, the result is inflation: nominal spending rises but so, too, do nominal prices - in the end it's a wash, with real spending remaining unchanged.
Government should forget about short-term trickery and focus on long-run fundamentals.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Wednesday June 18, 2008 at 5:02pm